Review the CIBC Mellon Managing a Cross-Border Joint Venture Case.docx

Review the CIBC Mellon: Managing a Cross-Border Joint
Venture Case Study found on below and respond to the
following:
· Compare and contrast strategic controls and financial
controls. Provide specific examples of how each may be used to
best serve a corporation.
· As a strategic leader, determine if you would feel ethically
responsible for developing your firm’s human capital and state
why. Discuss whether or not you believe your position is
consistent with the majority or minority of today’s strategic
leaders.
Thomas MacMillan leaned back in his chair and glanced out of
his office window down onto Bay Street, the epicenter of the
Canadian financial industry. During his 10-year tenure as
president and CEO of CIBC Mellon, MacMillan had presided
over the dramatic growth of the jointly owned, Toronto-based
asset servicing business of CIBC and The Bank of New York
Mellon Corporation (BNY Mellon). However, now it was an
overcast day in mid-September 2008 and MacMillan had a
front-row seat to witness the onset of the worst financial crisis
since the Great Depression. CIBC Mellon was facing this
oncoming global financial storm with a solid balance sheet and
was secure in the knowledge that both of its parents were also
well capitalized. However, the well-publicized impending
collapse of several long-standing financial titans threatened to
impact all players in the financial services industry worldwide.
Despite the fact that joint ventures (JVs) were uncommon in the
financial sector, MacMillan believed that the CIBC Mellon JV
was uniquely positioned to withstand the fallout associated with
the financial crisis and that it would be able to weather the most
significant risks facing the JV—execution risk and the potential

exodus of assets and clients who were panicked by the wider
financial pandemonium. MacMillan and his team recognized
that it would be critical for the JV to continue to deliver a high
level of client service and to avoid any major operational
missteps. MacMillan’s moment of introspection was interrupted
by a knock on the door. He was scheduled to meet with three
members of the company’s executive management committee,
Paul Marchand, Mark Hemingway and James Slater, to discuss
two pressing issues facing the JV. First, they needed to discuss
how to best manage any risks confronting the JV as a
consequence of the financial crisis. Given the massive size and
global reach of the largest financial service giants, and the
likelihood that some of these behemoths might now be teetering
on the edge of bankruptcy, CIBC Mellon, like other players in
the financial services industry, would be forced to move adeptly
to protect its operations from any potential exposure to the
larger players’ fates. While the systems, structure and culture
that prevailed at CIBC Mellon served as evidence of MacMillan
and his team’s diligent efforts over the past 10 years to focus on
risk management and to foster a culture of synergistic
cooperation, the question remained—how could the policies and
practices developed during the past decade be leveraged to
sustain the JV through the broader financial crisis? Second, the
four men were scheduled to continue discussions regarding
options for refining CIBC Mellon’s strategic focus, so that the
JV could emerge from the financial meltdown on even stronger
footing. Notwithstanding the immediate urgency of the financial
crisis, the JV’s management team recognized the need to
continue to manage the business with a view towards future
growth. asis was on asset servicing—the global custody
business—which was generally viewed as “a dull business, with
dull services, in a dull little corner of the financial services
sector.” Asset servicing delivers securities- related
administrative services to support the investment processes and
goals of clients. Such services include global custody, securities
lending, cash management, multicurrency accounting and

reporting, global performance measurement and analytics,
transition management, commission recapture and foreign
exchange. Clients include pension plans, investment managers,
mutual funds, insurance companies, and global financial
institutions. The fees charged to provide such administrative
services would typically be much less than one half of one per
cent of the value of the asset being supported.
In 1996, CIBC was one of the big five Schedule 1 (domestic)
banks in Canada. At that time, it had an average custodial
operation, with approximately 14 competitors, principally trust
companies and the security departments of the major banks.
CIBC had $100 billion in custody assets and a handful of
clients. Its technology platform was poor and needed significant
investment. It had three choices to make:
1. Invest—theproblemtherewasthatitwouldhavehad to invest a
lot of money ($300, $400, $500 million)— to come up with a
world-class custodial system. It was concerned that the revenue
potential from the Canadian marketplace would not have
resulted in it receiving adequate returns for its investment.
2. Exit the business—as a lot of companies in Canada
subsequently did.
3. Form a joint venture if it could find the right partner.
CIBC believed there was the potential of creating a good, viable
Canadian-based business, but it needed a partner.
In 1996, Pittsburgh-based Mellon Bank had a Schedule II
(Canadian bank which was a subsidiary of a foreign bank)
banking operation in Canada, which MacMillan ran. Its
Canadian custody market share was about one per cent—
specifically one client, Cdn$8 billion in assets under
administration, which was being administered out of Boston.
However, Mellon had a world-class technology platform, had
scale (in a scale business) and was committed to growing its
market share but was having difficulty breaking into the
Canadian marketplace. It knew it would be a difficult
Globe: © Jan Rysavy/iStockphoto.com
and slow process to get established in Canada by setting up a

greenfield operation.
CIBC approached several potential partners, but it was Mellon’s
technology and people that impressed it the most. CIBC had a
Canadian presence and a client base, but no technology and its
service was average. Mellon had great technology, products and
services, but no presence in Canada and few clients in the
country. And it was receptive to CIBC’s overtures. It seemed
the ideal circumstance for the birth of a joint venture—a great
fit. Both parties needed each other and there was very little
overlap. The opportunity to create a world- class Canadian asset
servicing company—when not many existed in Canada at the
time—was too enticing to pass up for both organizations. CIBC
Mellon was the first significant JV for either parent.
Given the relative rarity of JVs in the financial services sector,
the two sole shareholders in the proposed JV (CIBC and BNY
Mellon) devoted a considerable amount of thought and planning
during 1996 to the design and structure of the entity. A
significant volume of legal agreements was negotiated to
establish the parameters that would govern the relationship
between the two shareholders. Buried within the reams of legal
documents were provisions drafted to prohibit each of the
shareholder parents from competing against the JV; to detail the
limitations surrounding the JV’s use of the parent shareholders’
trademarks and other intellectual property; to outline the basis
upon which each parent would provide services to the JV,
including, in the case of BNY Mellon, the basis upon which it
would provide and “Canadianize” its technology for the JV; and
to require each of the shareholders to utilize the JV as a
supplier of asset servicing and global custody services.
One of the most critical governance clauses pertained to voting
rights. Under the JV’s shareholder agreement, each of the
parties would enjoy a 50 per cent vote on every issue. In effect,
this eliminated the need to vote on any issue—only consensus
could yield a decision and the JV managers needed to secure the
approval of both shareholders before taking any major issues to
the board. Accordingly, at the outset MacMillan and his team

recognized that in order for the JV to execute on its mission
both strategically and operationally, it would be critical for the
two shareholders, their employees and the JV’s employees to
develop an acute understanding and respect for the unique
capabilities that each shareholder brought to the JV. MacMillan
acknowledged that “the governance processes developed for this
JV effectively facilitated ought to the JV. MacMillan
acknowledged that “the governance processes developed for this
JV effectively facilitate.
markets, BNY Mellon had a strong understanding of credit in
the global custody market and enjoyed a strong reputation with
federal regulators in the United States. CIBC, on the other hand,
had a strong understanding of credit in the Canadian
marketplace and was known for its strong global trading
platform (CIBC World Markets).
Equally important were provisions pertaining to risk
management. The shareholders agreed to the formation and to
the membership on the JV’s Asset & Liability Committee
(ALCO). ALCO was tasked with the responsibility of
overseeing the formulation of risk management policies and
asset investment policies associated with the JV’s treasury and
securities lending activities—principal activities under which
financial services firms could become exposed to credit risk and
market risk. This pivotal committee was populated by senior
management from CIBC, BNY Mellon and the JV itself.
MacMillan acknowledged that both shareholders had sought to
structure the JV to develop a discrete, low-risk business and
that risk tolerance would be maintained in the parents’
businesses. As such, the JV only engaged in very conservative
transactions and did not engage in proprietary trading.
Appropriately managing risk necessitated clear and constant
communication in order to ensure that the JV was aligned with
its shareholders. It also effectively positioned the JV’s
management team to tap into the knowledge assets and
accumulated experience of two major financial institutions.
When formed at the end of 1996, the JV had fewer than 200

employees, $110 billion in assets under administration, a market
share of less than 10 per cent and revenues of about $25
million. However, over the next decade, the business grew
dramatically. In 1997, it acquired the Canada Trust custody
business. In 1999, it acquired the Bank of Montreal custody
business, in 2002, the TD Bank third-party custody business,
and in 2006, it was awarded the IG/Mackenzie custody business.
By 2006, there were 1,400 employees and 1,140 custody clients.
At this point, the asset servicing business offered a wide and
integrated range of products and services from custody to risk
management which could be grouped into two broad
categories—core asset servicing functions and capital markets
functions (see Exhibit 1). Historically, each of these two
categories of business functions contributed approximately 50
per cent of the profits generated by the JV’s asset servicing
business. While the core asset servicing business functions
supplied a stream of recurring-fee revenue to the JV, the income
stream generated by the capital markets functions could be more
volatile, depending upon the state of the capital markets. The
global
securities lending component of the capital markets functions
involved acting as an agent in facilitating the lending of debt
and equities from the JV’s clients to other clients, who were
typically brokers. While they did not disclose to CIBC Mellon
why they were undertaking any particular loan, it could be
expected that the brokers that borrowed the assets from CIBC
Mellon would utilize the assets both for their own proprietary
trading and to loan to the brokers’ clients, sometimes including
hedge funds that pursued short positions in equities. Short
positions were established by traders who sold equities that they
did not currently own. In essence, short sales involved selling
borrowed equity assets. Consistent with regulatory requirements
and its low-risk culture, CIBC Mellon routinely secured the
loans that it extended to its broker clients by requiring the
borrowers to pledge high-quality assets in excess of the value of
the underlying loans as collateral. Exhibit 2 illustrates the

interactions that occurred between external parties and CIBC
Mellon’s securities lending service.
By 2007, assets under administration for the JV’s asset
servicing business exceeded $800 billion, and were growing.
The JV had become the second-largest asset servicing business
in Canada, with a market share over 30 per cent. It was settling
15,000 transactions each day. Total revenues for CIBC Mellon
exceeded $350 million, and healthy quarterly dividends were
being paid to each partner.
The Stock Transfer and Corporate Trust Businesses In 1997, the
JV entered the trust services business through CIBC’s purchase
of a 50 per cent interest in Mellon’s R-M Trust Company. The
purchase was undertaken because the JV required a trust
company as a deposit-taker for its asset servicing business and
because R-M also had established stock transfer and corporate
trust businesses. Through this business, Canadian companies
that issued securities that traded on major stock exchanges
relied on CIBC Mellon to manage administrative duties like
security holder record keeping, securities transfers, investor
communication, dividend payments and employee plan
administration. The JV also acted as a corporate trustee for its
trust clients’ assets. In its corporate trustee role, the JV acted as
indenture trustee for a number of series of asset-backed
commercial paper (ABCP). ABCPs were typically short-term
commercial paper investments that were collateralized by other
financial assets which were characterized by very low risk. As
of 2006, the JV had 1,200 trust clients. CIBC Mellon did not
borrow or lend any securities in connection with this line of
business.
e felt many joint ventures failed (see Exhibit 3) and the reasons
why CIBC Mellon had been so successful. Let me start with the
one main reason that towers over all of them: our people. They
are amazing and we have together somehow created an
atmosphere where we can all thrive. Our people are our big
differentiator. This can happen in any company. It has happened
in our JV. We have succeeded because: ■■ The original

business plan made sense. CIBC Mellon is profitable, growing,
with good returns because the original business rationale was
solid. It wasn’t two “lousy” businesses coming together.
Outstanding Mellon technology and service was introduced into
Canada relatively quickly through a JV that had CIBC in its
name and made an immediate positive market impact. ■■ The
parents receive benefit from the JV itself in the form of
dividends but also from outside of the JV. Both parents make
significant FX revenues for their own books from JV clients.
We help Mellon win global custody bids, we help CIBC win
additional banking business that is often tied to asset servicing,
for example cash management. We contribute to the building of
strong client relationships for both parents. Mellon gets to
appropriately allocate costs to the joint venture connected with
their technology spend—and this spend is significantly larger
than what they could otherwise afford because of the JV. ■■
Both parents cooperate. I see it at every board meeting—they
respect and appreciate the contribution of the others; work
collaboratively to make the JV a success. Despite the historical,
jurisdictional and managerial differences, we’ve managed to put
these differences to the side to make the JV work. And when
there are differences of opinion (and frankly there’s not that
many) they work it out; and both organizations complement
each other: CIBC defers to Mellon’s expertise in the global
custody business; Mellon defers to CIBC’s knowledge/expertise
relative to Canadian business and banking. I think it helps that
both banks had a good solid friendship for many decades prior
to the formation of the JV. They were (and are) comfortable
with each other. They don’t really compete against each other in
any major business lines. Canadians are generally comfortable
working with Americans and vice versa. Both parents’ head
offices are in the same time zone. ■■ Commitment of the
parents. They have from the very beginning wanted to see the
JV succeed and grow and they spent time making this happen.
When more capital was required for acquisitions (the asset
servicing business of Canada Trust, BMO, TD)—both parents

were there. Early on in our history we had teething pains (our
level of client service was not what it is today)—the parents
didn’t waiver and constructively helped us overcome issues and
push on. ■■ The JV has effectively leveraged the strength of
both Mellon has 50 per cent ownership, but we benefit 100 per
cent from their ongoing technology spend—over US$200
million a year. On a stand-alone basis, we couldn’t afford
US$200 million each year for technology in support of asset
servicing business. This is an enormous plus for us. From CIBC,
we consistently leverage their client banking relationships to
win new business for CIBC Mellon. We also leverage
governance standards and risk management practices from both
partners. ■■ And finally—our company is well managed. We
have a strong board composed of mature, competent executives
who can speak for their organizations. There has been minimal
board turnover and when it has happened the transitions have
been smooth. My lead board members from both organizations
have been there since day one.
But equally important, I am blessed with an extremely strong
executive management team. This team gets direction from the
board and we run with it. They are also very skillful at working
with both shareholders to ensure that all interests are balanced
and satisfied and the strengths of both parents are fully realized.
This is a skill requirement unique to joint ventures. For
example:
■■ Leveraging technology development at Mellon and sales
development at both parents.
■■ Working with both parents’ risk, audit and compliance.
■■ It is a skill to unleash the power of our parents without
being overwhelmed by them.
And while we are proactive in leveraging the strengths of our
shareholders, we never forget we are a stand-alone organization
that needs to be managed effectively. We have developed a
strong internal culture quite independent of our parents,
including our own strategy, brand, vision and core values. And
we’ve shown enormous skills in imitating and successfully

concluding major acquisitions at critical times.
The markets have been generally favourable the last 10 years.
There has been tremendous growth in the mutual fund industry,
a major sector for us. There has been an accelerating trend to
globalization of the capital markets, including increased
complexity of financial instruments, and heightened
requirements for reporting and transparency and real time
information. These all play to our strengths. Not all of this was
anticipated back in 1996. Over the past 10 years, we’ve had a
good tailwind. You are better to be lucky than good, but we
have been good.
2007–2008: From Tailwind to Headwind
The growth that had characterized the global financial sector up
until 2006 began to materially change in 2007. A rapid series of
problems began to either emerge or become more widely
acknowledged. Fundamental differences that existed between
the Canadian and U.S. banking sectors posed a unique set of
concerns for financial institutions with operations on both sides
of the border. Discrepancies in consumer debt and equity levels,
divergent banking regulations and differences in the structure of
each country’s mortgage security industry comprised some of
the most significant concerns.
The Canadian Financial Sectori
Canada as a whole was entering the crisis with a strong balance
sheet and economic position. Consumers had lower debt and
more savings than in the United States.
Mortgages were originated and held by Canadian banks, not
packaged up and sold as securities. Canadian mortgages were
generally five years or less, and mortgage interest was not tax
deductible in Canada, so homebuyers were not encouraged to
buy beyond their means. There were no 40-year terms, and
buyers had to be able to have a down payment. Canadian Banks
could not lend more than 80 per cent of the value of a house
without mortgage insurance from the Canada Mortgage and
Housing Corporation.
Canadian banks were large, stable and sophisticated national

entities (an oligopoly). With branches across the country and
often in other countries, Canadian bank risk was dispersed.
Canadian bankers tended to be more risk- averse than their U.S.
and international counterparts. Canadian banks were required to
maintain a tier one capital ratio of seven per cent and generally
exceeded it. They had to cap overall leverage at 20× capital.
iThis section is from “You Can Take It to the Bank,” Ivey
inTouch Magazine, Fall 2009, p. 14.
Canadian banks were regulated by a single piece of legislation,
the Bank Act, which was reviewed every five years, and one
national body, the Office of the Superintendant of Financial
Institutions (OSFI). OSFI had broad oversight—there was no
“shadow banking system” that fell outside the regulations.
Canada also had strong monetary policy set by the Bank of
Canada and the Department of Finance.
In Canada, most investment banks were owned by commercial
banks, providing them with access to capital during a crisis.
The U.S. Financial Sector
Despite the close geographic proximity, the nature of the United
States banking and mortgage industry differed significantly
from the system that prevailed in Canada.
Decades ago, the U.S. government launched two agencies to
promote home ownership in the United States—the Federal
National Mortgage Association (“Fannie Mae”) and the Federal
Home Loan Mortgage Corporation (“Freddie Mac”). These
agencies were designed to increase the availability of funds for
originating mortgages and to encourage the emergence of a
secondary market for mortgages. Subsequently, mortgages could
be traded without the involvement of either the original
borrower or the original lender.
In the 1990s, to further encourage home ownership in the
United States, policymakers lowered the amount of equity that
homebuyers were required to invest in the purchase of a home.
As a consequence of this policy shift, borrowers who were
previously unable to secure a mortgage were able to enter the

housing market. Further, the overall degree of leverage in the
U.S. housing market increased substantially and a housing
bubble emerged as homeowners began to speculate by moving
into more expensive homes.
The coincident emergence of three financial innovations in the
United States—interest-only mortgages, asset securitizations
and credit default swaps—ultimately set the stage for the
perfect storm that had converged over the U.S. financial system
by 2007.
Unlike self-amortizing mortgages in which the mortgage
principal was retired through regular payments of principal and
interest over the life of a mortgage, interest-only mortgages
were mortgages in which the borrower was given the
opportunity to pay only the interest portion of a regularly
scheduled mortgage payment. Interest-only mortgages were
designed to open home ownership to low-income earners who
demonstrated enhanced future earning potential, at which point
their mortgage would be converted into a self-amortizing
mortgage. Interest-only mortgages benefitted these low-income
homeowners by facilitating their entry into the housing market
though payments which were lower than the payment under a
self-amortizing mortgage.However, the emergence of interest-
only mortgages also contributed to speculation in the housing
market, as some investors purchased homes, made the interest
payments while waiting for the value of their homes to increase
and then sold the homes, paying back the mortgage principal
with the proceeds from the home sale and pocketing the surplus.
Asset securitization involved aggregating a series of future cash
flows into a security which was then sold to investors.
Mortgage-backed securities (MBSs) were a type of asset
securitization in which the underlying asset backing the security
was a mortgage which generated cash flows from the interest
payments. A securitization was a structured finance product that
was originally designed to distribute risk. In fact, when
conceived, MBSs were regarded as low-risk investments
because they were backed by mortgages and mortgage defaults

were relatively rare occurrences.
Credit default swaps (CDSs) RESEMBLES INSURANCE
POLICIES in the sense that one party paid a series of cash
flows to a counter-party in exchange for the promise that the
counter-party would reimburse the payer if the underlying asset
defaulted. A significant portion of the market for CDSs was
built around MBSs. Investors in asset-backed securities such as
MBSs regularly insured their investments by purchasing CDSs.
The premium revenue stream associated with a CDS on an MBS
was considered particularly attractive due to the low level of
perceived risk, again due to the relatively rare occurrence of
mortgage defaults. Despite their resemblance to insurance
policies, CDSs were traded as contracts in the derivatives
markets and were free from insurance industry regulations.
Consequently, the relative ease with which CDSs could be
issued, coupled with the fact that it was not necessary to own
the underlying asset in order to purchase a CDS, effectiv
Two phenomena associated with these three financial
innovations further compromised the precarious foundation
upon which the U.S. banking and mortgage industry was
perched—subprime mortgages and individual compensation
systems prevailing in the financial sector. While mortgages
issued to creditworthy borrowers were known as prime
mortgages, subprime mortgages were issued to borrowers with
poor credit. MBSs based on subprime mortgages became
particularly attractive investment vehicles due to their high
returns and low levels of perceived risk (due to the assumption
that widespread mortgage defaults were highly unlikely). At the
same time, mortgage originators
and derivative traders were being compensated on the volume of
mortgages originated and derivatives sold (MBSs and CDSs).
Increased trading volumes in these assets were fueled by the
fact that compensation was rarely adjusted to the riskiness of
either the borrower or the underlying asset.

By 2007, the robust growth in U.S. home prices slowed
dramatically. As home prices began to decline, the value of
mortgages began to exceed the market value of many homes. A
flood of mortgage defaults ensued to the point that mortgage-
backed securities began to decline in value. The complex nature
of these securities further undermined their value. Given that it
was not possible to link an MBS to specific properties, investors
could not evaluate the risk of default on specific MBSs and,
therefore, were unable to ascertain market values for these
MBSs. The secondary market for mortgages was near collapse.
The difficulty associated with valuing these securities proved to
be particularly problematic for financial institutions that owned
the devalued MBSs and for financial institutions facing
insurance-like claims on the CDSs they had written on the bet
that widespread mortgage defaults would never occur.
Consequently, these financial institutions were required to raise
more capital to shore up their capital ratios. However, the
increasing pervasiveness of uncertainty effectively turned off
the taps in both credit and capital markets, making the task of
raising capital almost impossible. As the cost of capital
skyrocketed and credit stopped flowing in the United States,
financial institutions began to fail. Several “runs on the bank”
were triggered in which customers lined up to fully withdraw
their deposits. In June 2008, panicked customers of IndyMac
Bank in the United States withdrew $1.5 billion in deposits
(approximately 7.5 per cent of total bank deposits). Similarly,
over the course of ten days in September 2008, customers
withdrew more than $16 billion from Washington Mutual Bank
(totaling nine per cent of total bank deposits). The uncertainty
spilled over U.S. borders, triggering bank runs and failures
overseas as well Most notable was the bank run and subsequent
failure of the U.K.–based Northern Rock bank, which was
subsequently nationalized, in part, to subdue the panic.
Conclusion
The Challenge of Refining the Future Direction of the Joint
Venture As early as the summer of 2007, credit spreads for

certain financial companies and instruments widened
dramatically. In Canada, the market place for ABCP began to
show signs of stress. The JV’s ALCO Committee ON
RECOMMENDATION OF CIBE Mellon’s risk management
group and leveraging the respective credit market specialties of
both shareholders, directed the JV to refrain from using any of
CIBC Mellon’s treasury or client funds (the latter in the form of
cash collateral for securities lending transactions) to purchase
non-bank-owned ABCP. Eventually, in August 2007, the $30
billion market for non-bank-owned ABCP essentially froze. The
looming financial crisis did not portend a quick or strong
recovery in the credit markets, particularly in the ABCP market.
MacMillan and his team suspected that the future growth
potential for the stock transfer and corporate trust business
segments was more limited than it was for the asset servicing
business. Notwithstanding the onset of the financial crisis,
MacMillan debated whether the JV should retain or divest these
business lines in order to focus more intensely on the asset
servicing business for which the JV was formed.
Challenge of Avoiding Major Operational Missteps The brewing
financial storm became fodder for the media and it started to
rattle financial markets. Despite the fact that there were reasons
to believe that the impending financial crisis might not be as
bad in Canada as it was likely to be in the United States and
elsewhere, numerous challenges remained. Not least of these
was the fact that the crisis would likely bring out the worst in
many long-term business relationships. As liquidity was
tightening, many financial sector lenders, borrowers and
partners alike were putting aside years, even decades, of
cooperation in order to ensure their own survival. This was in
contrast to the approach adopted by CIBC Mellon in the months
leading up to and during the crisis. It retained its long-standing
practice of emphasizing very extensive communication with its
clients and its shareholders, ensuring shared understanding of
issues, including having representatives from both parents on
ALCO and maintaining transparency.

By mid-September 20028, the most significant risks facing
CIBC Mellon were credit risk, operational risks and market risk,
as well as the potential exodus of assets and clients who were
panicked by the wider financial chaos. MacMillan and his team
recognized that it would be critical for the JV to continue to
deliver a high level of client service and to avoid any major
operational missteps. A key challenge facing the JV pertained to
efforts to remain loyal to both long-time and newer business
clients, while not exposing the JV to excessive risk in the
context of an increasingly volatile market. While CIBC
Mellon’s global securities lending operations had extended
considerable credit to some of the now more precariously
perched financial giants, the JV was comfortable that these
loans were adequately collateralized. Nevertheless, in order to
ensure that the loaned assets were not subsumed into any
debtors’ possible bankruptcy proceedings, the JV would need to
execute against legal agreements with rigour, to preserve its
legal rights, including, if necessary, taking possession of
collateral assets and then liquidating these assets in an
increasingly turbulent market. Critical decisions were faced by
MacMillan, Marchand, Hemingway and Slater, ranging from
short-run decisions such as how to determine when to call in
credit extended to some of the JV’s global securities lending
clients and how to liquidate any collateral that the JV was
forced to take into possession, to longer-run decisions
surrounding how to manage the JV’s relationships with its
solvent clients, so as to stem any risk of client or asset flight.
MacMillan closed the door to his office. Notwith- standing the
110 years of collective experience between MacMillan,
Marchand, Hemingway and Slater, the four men recognized that
the markets were headed for uncharted waters. MacMillan
opened the meeting, reminding the group, “Gentlemen, now
more than ever, we need to leverage our JV’s administrative
heritage, the guidance of our shareholders and the respective
strengths of the parents to move through these unprecedented
times.

Review the CIBC Mellon Managing a Cross-Border Joint Venture Case.docx

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